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Article
Publication date: 1 December 2000

Chris Mundy

Draws on the results of a survey into alternative risk transfer by Marsh Risk Finance covering major corporations over three years. Covers the needs of the buyers rather…

Abstract

Draws on the results of a survey into alternative risk transfer by Marsh Risk Finance covering major corporations over three years. Covers the needs of the buyers rather than the suppliers. Shows how alternative risk transfer can be of value to the insurance world in particular. Highlights a need for this technique to reach a wider audience as buyer perceptions change.

Details

Balance Sheet, vol. 8 no. 6
Type: Research Article
ISSN: 0965-7967

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Article
Publication date: 1 January 2012

Nadine Gatzert and Hato Schmeiser

The purpose of this paper is to provide a detailed analysis of industry loss warranties (ILWs), an alternative risk transfer instrument which has become increasingly…

Abstract

Purpose

The purpose of this paper is to provide a detailed analysis of industry loss warranties (ILWs), an alternative risk transfer instrument which has become increasingly popular throughout the last few years.

Design/methodology/approach

The authors first point out key characteristics of ILWs important to investor and cedent, including transaction costs, moral hazard, basis risk, counterparty risk, industry loss index, and regulation. Next, the authors present and discuss the adequacy of actuarial and financial approaches for pricing ILWs, as well as the aspects of basis risk. Finally, drivers of demand and associated models frameworks from the purchaser's viewpoint are studied.

Findings

Financial pricing approaches for ILWs are highly sensitive to input parameters, which is important given the high volatility of the underlying loss index. In addition, the underlying assumption of replicability of the claims is not without problems. Due to their simple and standardized structure and the dependence on a transparent industry loss index, ILWs are low‐barrier products, which can also be offered by hedge funds. In principle, traditional reinsurance contracts are still preferred as a measure of risk transfer, especially since these are widely accepted for solvency capital reduction. However, the main important impact factor for the demand of ILWs from the perspective of market participants, i.e. large diversified reinsurers and hedge funds, is the lower price due to rather low transaction costs and less documentation effort. Hence, ILWs are attractive despite the introduction of basis risk and the still somewhat opaque regulatory environment.

Research limitations/implications

An important issue for future research is how reinsureds deal with the basis risk inherent in ILWs. Another central point is the development of a European industry loss index and the creation of an exchange platform to enable an even higher degree of standardization and a faster processing of transactions.

Originality/value

ILWs feature an industry loss index to be triggered, and, in some cases, a double‐trigger design that includes a company indemnity trigger. ILW contracts belong to the class of alternative risk transfer instruments that have become increasingly popular, especially in the retrocession reinsurance market. There has been no comprehensive analysis of these instruments in academic literature to date. Consequently, the authors believe that this paper provides a high degree of originality.

Details

The Journal of Risk Finance, vol. 13 no. 1
Type: Research Article
ISSN: 1526-5943

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Article
Publication date: 1 April 2002

Alternative risk solutions describe the transactions and vehicles that manifest the convergence of insurance and financial markets. This brief article surveys the concepts…

Abstract

Alternative risk solutions describe the transactions and vehicles that manifest the convergence of insurance and financial markets. This brief article surveys the concepts and issues (regulatory, legal, accounting, etc.) that form the foundation for the transfer and financing of risks not previously priced or traded in financial markets.

Details

The Journal of Risk Finance, vol. 4 no. 1
Type: Research Article
ISSN: 1526-5943

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Article
Publication date: 1 March 2002

SYLVIE BOURIAUX and DAVID T. RUSSELL

The recent trend of integrated risk management has resulted in corporations reassessing their risk management practices. Insurance derivatives and insurance‐linked…

Abstract

The recent trend of integrated risk management has resulted in corporations reassessing their risk management practices. Insurance derivatives and insurance‐linked securities are emerging as alternatives or complements to traditional resisurance capacity. Despite its theoretical benefits, the market for insurance‐linked transactions has not matured, due to problems of information asymmetry and lack of transparency. This article proposes a solution to resolve the conflicting interests preventing insurers/reinsurers and investors from more widely trading insurance risk.

Details

The Journal of Risk Finance, vol. 3 no. 4
Type: Research Article
ISSN: 1526-5943

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Article
Publication date: 1 June 2001

Chris Mundy

The author traces the history and philosophy behind the concept of risk transfer and concentrates on the underlying theory of insurance. He argues that the complexity of…

Abstract

The author traces the history and philosophy behind the concept of risk transfer and concentrates on the underlying theory of insurance. He argues that the complexity of the modern business world has meant that the simplicity of the concept has been lost. To this has been added the additional burden of regulation and a greater concentration on risk management. He suggests that the concept of enterprise risk management is the one which cuts this Gordian Knot and describes its benefits in adding value to the enterprise.

Details

Balance Sheet, vol. 9 no. 2
Type: Research Article
ISSN: 0965-7967

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Book part
Publication date: 28 October 2019

Angelo Corelli

Abstract

Details

Understanding Financial Risk Management, Second Edition
Type: Book
ISBN: 978-1-78973-794-3

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Article
Publication date: 17 August 2015

Alexander Hendrik Maegebier

– Two strands of the literature are combined, namely the modeling of disability insurance and the design, valuation and discussion of insurance-linked securities.

Abstract

Purpose

Two strands of the literature are combined, namely the modeling of disability insurance and the design, valuation and discussion of insurance-linked securities.

Design/methodology/approach

This paper provides a discussion regarding the advantages and detriments of disability-linked securities in comparison with mortality-linked bonds and swaps as well as regarding potential disability-linked indices and the potential use. The discussion is followed by an introduction of a potential design and a corresponding valuation of disability bonds and swaps.

Findings

This securitization will provide useful tools for the risk management of disability risk in a risk-based regulatory framework.

Originality/value

No disability-linked securities have been defined and discussed so far.

Details

The Journal of Risk Finance, vol. 16 no. 4
Type: Research Article
ISSN: 1526-5943

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Article
Publication date: 4 August 2014

Nannan Wang

This paper aims to analyse the findings of the relevant studies, to summarise what has been done in this area, to direct future research and to improve private finance…

Abstract

Purpose

This paper aims to analyse the findings of the relevant studies, to summarise what has been done in this area, to direct future research and to improve private finance initiative (PFI) practice. PFI is a new form of contracting out public facilities to the private sector, where facility management was integrated with construction. There have been a large number of academic papers published on this subject; however, there is a lack of a systematic review of the PFI-related studies.

Design/methodology/approach

The literature search focused on international peer-reviewed and published literature, with relevance to PFI. The search of literature, following the method of Tang et al. (2010) and Al-Sharif and Kaka (2004), involved the titles, keywords and abstracts, from some major electronic databases (Web of Science, Engineering Village, Science Direct (Elsevier) and Springer Link) of publications published between 1992 and 2011. The data were classified into six categories for further analysis.

Findings

As a new way to procure public facility management, PFI projects have unique characteristics in comparison to conventional construction procurement. The review of the literature regarding PFI is important in terms of summarising the key findings and suggestions of studies for industry practitioners, as well as forecasting the future academic research trends in this area. The number of research works on PFI increased quickly in recent years; however, the review discovered there were still some issues not yet covered in the literature.

Research limitations/implications

This review is not exhaustive in nature, as the criteria in selecting research papers only included English-written, peer-reviewed journals from some major electronic literature databases. This is the limitation of the research. Further review on a wider range of literature is recommended for researchers.

Originality/value

Since PFI was introduced to the construction industry to fund infrastructure 20 years ago in the UK, it has gained interests from scholars. In this new form of contracting out public facilities to the private sector, facility management was integrated with construction. There have been a large number of academic papers published on this subject; however, there is a lack of a systematic review of the PFI studies.

Details

Facilities, vol. 32 no. 11/12
Type: Research Article
ISSN: 0263-2772

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Article
Publication date: 1 December 2002

The insurance market is having a tough time. Costs are rising as risk become tougher. But the best risks see high costs of insurance as a reason to leave the market and…

Abstract

The insurance market is having a tough time. Costs are rising as risk become tougher. But the best risks see high costs of insurance as a reason to leave the market and insure themselves. The market cycle has been broken. The key now is to understand and manage risks. Alternative risk transfer techniques could be an answer. But finance directors need to understand the whole issue of risk and risk management much better.

Details

Balance Sheet, vol. 10 no. 4
Type: Research Article
ISSN: 0965-7967

Keywords

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Article
Publication date: 1 September 2001

David Clementi

As deputy governor of the Bank of England, the author provides an overview of the trends in consolidation of the market before assessing current proposals on the capital…

Abstract

As deputy governor of the Bank of England, the author provides an overview of the trends in consolidation of the market before assessing current proposals on the capital adequacy of banks and the new Basel Accord. He expresses concern about the perennial problem of liquidity and then provides some analysis of recent developments, particularly in alternative risk transfer mechanisms. He argues that innovations must be treated with some care and suggests that risk management in the financial system is the overarching goal.

Details

Balance Sheet, vol. 9 no. 3
Type: Research Article
ISSN: 0965-7967

Keywords

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